Draining the Shark Pool

Gov. Howard Dean is suddenly singing a different tune about Act 60. The focus of his current concern is the so-called "shark pool", a major target of critics from high-wealth towns hit hard by the new act. First, it is necessary to understand clearly how the education revenue-raising side of Act 60 works. There are in effect two "state" property taxes in Act 60. The first and more easily understood is the statewide property tax levied on all taxable real property at the flat rate of $1.10 (phased in by 2001). The proceeds of this tax will provide for block grants to local districts of just over $5000 per pupil. The second and more confusing state property tax works this way. Of the 251 school districts, a handful will decide that this block grant is enough to run their schools. They will take the block grant money and be heard from no more.

The voters in the remaining towns will vote budgets higher than $5000 per pupil. The sum of this over-$5000 spending defines the amount this second tax must raise. These, say, 240 towns now comprise a new "virtual" state. A second state property tax is levied on the total property tax base of this new 240-town state, at a rate sufficient to raise the prescribed spending. Since the tax base from these 240 towns is pooled and taxed at a single rate, wealthy towns will end up being taxed far more than the extra money their voters voted for their local school budget.

This is the "shark pool". In effect, it taxes Stowe and Sherburne heavily and sends the money to Worcester and Hardwick. Naturally, wealthy-town taxpayers think they are getting robbed, giving rise to the "town against town" resentment.

This second equalized state property tax was a direct consequence of the Supreme Court's ruling in the Brigham case. In that case the Court ruled that "children who live in property-rich districts should be afforded a substantially equal opportunity to have access to similar educational revenues."

A year ago Gov. Dean was scornful of critics of the "shark pool", and defended it this way: "If you [a town] do spend above the statewide average, you're going to be taxed substantially above the statewide average. That's one of the things in this bill I like." In April the governor denounced a New York Times article on the rich-town anger over the shark pool as "trash". But on October 1, in his biennial campaign announcement that he intended to make education a number one priority in his next term, Gov. Dean stated that he wanted to alter or even eliminate the shark pool, but to date had not found a workable alternative.

There is, of course, one obvious alternative: roll the two state property taxes into one, with a uniform $1.40 rate on all taxable property. Anticipating this, Senate Republicans in 1997 tried to make any increase in the state levy subject to popular referendum approval, but they were outvoted by the Democrats, some of whom undoubtedly suspected what they might have to do to fix their handiwork. Increasing the state property tax rate by 28% even before the old rate took effect would probably be politically fatal to those who agreed to do it. Another alternative would be to replace the shark pool levy with other revenues. But an increased income tax runs into strong resistance from both Gov. Dean and the Republicans, who are well aware of the negative effects income tax rate increases have on job creation; and increasing the sales tax arouses the strong opposition of Democrats and Connecticut Valley Republicans.

A gross receipts tax is under study as a replacement for all of the education property tax revenues. Unfortunately, since a gross receipts tax would have to replace $175 million raised by the present 5% sales tax and also provide for certain important exemptions, the resulting GRT rate would have to approach 5%. This high rate would exacerbate the problems of a GRT, probably fatally.

The Vermont Coalition of Municipalities argues that its Education Revenue Sharing plan, which has no state property tax, would comply with Brigham. But even the Coalition's own legal analysis notes that the Supreme Court would have to be convinced that equalizing tax burdens is what it had in mind when it decreed "substantially equal opportunity to have access to similar educational revenues". Since the ERS plan would still allow wealthy-town voters to impose high tax burdens on themselves without making any payments into a pool, it seems clear that the Court would have to stretch impossibly far to approve such a plan without abandoning its holding in Brigham.

Vermont's basic problem is a Supreme Court that tortured history, obscured key definitions, and abandoned sound legal process to impose its radical egalitarian dogma on a legislature whose liberal majority was all too eager to buy into the game. Until the people's representatives come to grips with the problem of a self-politicized Supreme Court, we are probably stuck with some version of the despised shark pool, Gov. Dean's election-year conversion notwithstanding.

September 1998